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May 30, 2014

Why do we associate pieces of eight with pirates? Perhaps it has to do with the role of the phrase “pieces of eight” in one of the greatest pirate adventures in literature, Treasure Island* (Robert Louis Stevenson, 1883). It’s Captain Flint the parrot, belonging to the pirate Long John Silver, who’s continually screaming “pieces of eight!” The last few sentences of the book read:

The bar silver and the arms still lie, for all that I know, where Flint buried them; and certainly they shall lie there for me. Oxen and wain-ropes would not bring me back again to that accursed island; and the worst dreams that ever I have are when I hear the surf booming about its coasts or start upright in bed with the sharp voice of Captain Flint still ringing in my ears: “Pieces of eight! Pieces of eight!”

May 28, 2014

Total consumer debt continued to increase in the first quarter of this year, marking the first time since the recession that aggregate debt had grown for three consecutive quarters, according to the May 2014 Quarterly Report on Household Debt and Credit. Is this increase in household debt driven by changes in supply or demand? The January 2014 and April 2014 Senior Loan Officer Opinion Surveys (SLOOS) show an increase in lenders’ willingness to make consumer loans over the last several quarters and an increase in the number of lenders reporting looser lending standards, which indicates that credit supply is increasing. To get a better sense of the underlying factors in the evolution of household credit conditions, in February we surveyed 1,110 respondents of the New York Fed’s Survey of Consumer Expectations (SCE) about their ability to obtain credit over the past twelve months and their expectations about future credit access.

May 23, 2014

“The trouble with money,” said a Federal Reserve Bank of New York publication in the 1960s, “as with all material things in the world, is that it does not last forever.” The Federal Reserve has the important task of adding liquidity to the market, but did you know that it is also responsible for removing money—literally—through currency destruction? U. S. currency is made of 25 percent linen and 75 percent cotton, which makes it pretty durable, but even so, currency is removed from circulation at a surprising rate. Each denomination of notes has its own life cycle, and $1 bills, for example, have to be replaced every 5.9 years or so.

May 21, 2014

At today’s regional economic press briefing, we provided an update on economic conditions in New York, northern New Jersey, and Puerto Rico, with a special focus on the kinds of jobs that have been created in each of these places during the recovery. Led by New York City, economic activity has continued to expand in most parts of the region. As a result, a growing number of places have now gained back, or are close to gaining back, all of the jobs that were lost during the Great Recession. That said, not all the news was positive. Economic conditions appear to have weakened somewhat in northern New Jersey during the first few months of 2014, in part due to the harsh winter weather earlier this year. And a few places remain very weak. In particular, Binghamton, Elmira, Utica, and Puerto Rico have yet to see any meaningful jobs recovery.

This post is the second of two Liberty Street Economics posts on trade finance.

Banks play a critical role in international trade by offering letters of credit (LCs) that substantially reduce the risk faced by exporters. As we discuss in our recent New York Fed staff report, the use of LCs by U.S. exporters has been on an upward trend in recent years. Two reasons for this may be that firms rely more heavily on LCs in financing export sales when interest rates are low and when uncertainty in global markets is high. Furthermore, the use of LCs differs across countries. Specifically, LCs largely support exports to countries with intermediate levels of risk. This is likely because the fees for exports to higher-risk countries eventually become too substantial.

May 19, 2014

This post is the first of two Liberty Street Economics posts on trade finance.

Banks facilitate international trade by providing financing and guarantees to importers and exporters. This is a big business for U.S. banks, but it has been difficult to estimate exactly how big due to a lack of data. In our recent New York Fed staff report, we shed some light on the size and structure of this market using information on banks’ trade finance claims available internally at the New York Fed. This post, the first of two, shows how trade finance has become more important in recent years, particularly with firms exporting to Asia. It also reveals that the size of the trade finance business varies widely across countries, with distance and shipping times from the United States being important factors. The second post will look at how trade finance is tied to country risk.

May 16, 2014

Today, the Federal Reserve Bank of New York (FRBNY) is hosting the spring meeting of its Economic Advisory Panel (EAP). At this meeting, FRBNY staff are presenting their forecast for U.S. growth, inflation, and unemployment through the end of 2015. Following the presentation, members of the EAP, all of whom are leading economists in academia and the private sector, are asked to critique the staff forecast. Such feedback helps the staff evaluate the assumptions and reasoning underlying their forecast and the key risks to it. Subjecting the staff forecast to periodic evaluation is an important part of the forecasting process; this review informs the staff’s discussions with New York Fed President William Dudley about economic conditions. In the same spirit of inviting feedback, we are sharing a short summary of the staff forecast in this post; for more detail, see the material from the EAP meeting on our website.

U.S. involvement in what could be one of the world’s largest free trade agreements, the Trans-Pacific Partnership (TPP), has garnered a lot of attention, especially since the entry of Japan into negotiations last year. The proposed free trade agreement (FTA) encompasses twelve countries, which combined account for 45 percent of U.S. exports and 37 percent of U.S. imports. This broad coverage of U.S. trade seems to suggest large potential gains for the U.S. from the agreement. However, three quarters of this trade is already within the U.S. free trade agreement with Canada and Mexico (the North American Free Trade Agreement (NAFTA)), making the assessment of potential gains to the TPP less clear cut. In this post, we investigate some implications of TPP for U.S. international trade, with a focus on identifying areas with the greatest potential for liberalization and, hence, benefits to U.S. exporters and consumers.

May 14, 2014

Most gauges of “the” equity risk premium have declined since the financial crisis but remain elevated, even as broad market indexes near record highs. The implication for investors seems simple; they can expect to be rewarded handsomely for bearing equity risk, relative to holding Treasuries. Lessons for central bankers may also appear straightforward. Sizable premiums could imply that aggressive unconventional monetary policy hasn’t necessarily eased financial market conditions satisfactorily. However, my recent New York Fed staff report suggests that such a cursory reading ignores the term structure of equity premiums, which conveys a subtler story about more precisely when over the investment horizon investors get paid to take risk and how monetary policy accommodation may have affected stock prices.

May 13, 2014

Last year, our blog presented results from the FRBNY Consumer Credit Panel (CCP) indicating that, at a time of unprecedented growth in student debt, student borrowers were collectively retreating from housing and auto markets. In this post, we compare our 2012 findings to the news for 2013.

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